Africa: Report Highlights Resource Plunder

Editor's Note

"Take the profit out of plunder: Africa's resources should be
sustainably managed for the benefit of Africa's peoples. National and
regional action alone will not be enough. The international community
must develop multilateral systems that prevent the plunder of
Africa's resources [of fisheries and forests]." - Africa Progress
Panel, 2014

The African Progress Panel, a body headed by former UN SecretaryGeneral
Kofi Annan, may seem an unlikely group to be using words such
as "plunder" to characterize Africa's economic challenges. But its
reports, including last year's report with a key focus on mining
industries and capital flows out of Africa, indicate that such
structural critiques are gaining ground not only among radical
critics but also in more centrist circles. Inequality and even
plunder are topics for debate that cannot be avoided.

This AfricaFocus Bulletin contains excerpts from the summary of the
2014 Africa Progress Panel report, released on May 8.

This year's report focuses in particular on the sectors of fisheries
and forests, stressing that the failure to manage these resources
increases inequality and drains wealth from the continent. In more
general terms, it stresses the need to invest in social protection
programs and that this in turn can help supply more stability for
Africa's small farmers who are essential to broad-based economic
advances.

The full report is available on the panel's website
(http://africaprogresspanel.org),
as are reports from previous years. The 2012 report, excerpted in an earlier AfricaFocus
(http://www.africafocus.org/docs12/app1205.php), focused on jobs and
equity. That report stressed that "Countries across Africa are
becoming richer but whole sections of society are being left behind."

Africa Progress Report 2014: Grain, Fish, Money

Summary

"Africa is a land of opportunity ... business opportunities are
there, growth is there and the population is there." - President
Macky Sall, Senegal, January 2014

"Families have lived off fish for generations ... but fish stocks
have been reduced. Our revenues have come down. We used to be able to
save a bit for our children's education or to fix our boats but it
has now become harder to make ends meet." Issa Fall, Fisherman
Committee, Soumbedioune, Senegal, January 2014

These two views from one country in Africa tell very different
stories. President Macky Sall was speaking about his government's
"Emergent Senegal" investment plan - a multibillion-dollar strategy
for transforming the country's infrastructure. Ten years ago Senegal
was still in the grip of a debt crisis. Now it is able to sell
sovereign debt on eurobond markets. The economy is gaining strength,
exports are growing and Senegal is emerging as a regional hub for
transport, logistics and tourism.

Then there is the other Senegal - the Senegal of Issa Fall. Along
with tens of thousands of artisanal fishers who ply their trade from
pirogues, canoes built by hand from local timber, his livelihood is
under threat. The ocean off West Africa is one of the world's richest
fishing grounds. Yet catches are declining, along with the income
they generate. The reason: illegal, unreported and unregulated
fishing by commercial fleets from other countries. Senegal lacks the
capacity to monitor the activities of these fleets. Until recently,
it also lacked the political will to tackle the problem. Leaders and
business interests actively colluded in, and benefited from, the
illegal sale of permits to foreign fleets.

Senegal's experience is a microcosm of a wider story. For more than a
decade, Africa's economies have been doing well, according to graphs
that chart the growth of GDP, exports and foreign investment. The
experience of Africa's people has been more mixed. Viewed from the
rural areas and informal settlements that are home to most Africans,
the economic recovery looks less impressive. Some - like the
artisanal fishermen of West Africa - have been pushed to the brink of
destitution. For others, growth has brought extraordinary wealth.
Africa is now home to some of the world's fastest-growing markets for
luxury goods - and signs of the new prosperity are increasingly
visible alongside reminders of the old problem of poverty.

Africa stands at a crossroads. Economic growth has taken root across
much of the region. Exports are booming, foreign investment is on the
rise and dependence on aid is declining. Governance reforms are
transforming the political landscape. Democracy, transparency and
accountability have given Africa's citizens a greater voice in
decisions that affect their lives.

These are encouraging developments. Yet the progress in reducing
poverty, improving people's lives and putting in place the
foundations for more inclusive and sustainable growth has been less
impressive. Governments have failed to convert the wealth created by
economic growth into the opportunities that all Africans can exploit
to build a better future. The time has come to set a course towards
more inclusive growth and fairer societies.

This year's Africa Progress Report addresses some of the central
challenges facing Africa's governments. We share the view that there
is much cause for optimism. Demography, globalization, new
technologies and changes in the environment for business are
combining to create opportunities for development that were absent
before the economic recovery. However, optimism should not give way
to the exuberance now on display in some quarters. Governments
urgently need to make sure that economic growth doesn't just create
wealth for some, but improves wellbeing for the majority.

Above all, that means strengthening the focus on Africa's greatest
and most productive assets, the region's farms and fisheries. This
report calls for more effective protection, management and
mobilization of the continent's vast ocean and forest resources. This
protection is needed to support transformative growth. The
achievements of the past decade and a half should not be understated.
Economic growth has increased average incomes by around one-third. On
the current growth trajectory, incomes will double over the next 22
years. Once synonymous with macroeconomic mismanagement and economic
stagnation, Africa now hosts some of the world's fastest-growing
economies. When it comes to growth, Ethiopia rivals China, and Zambia
outpaces India. Contrary to a widespread misperception, there is more
to the growth record than oil and minerals - and more than exports
and foreign investment. African business groups have emerged as a
powerful force for change in their own right, in areas such as
banking, agro-processing, telecommunications and construction.

For the first time in a generation, poverty is falling - but it is
falling far too slowly. The benefits of growth are trickling down to
Africa's poor but at a desperately slow pace. Next year, African
governments will join the wider international community in adopting
post-2015 international development goals. One of those goals will be
the eradication of poverty by 2030. On current trends, Africa will
miss that goal by a wide margin. Why is growth reducing poverty so
slowly? Partly because Africa's poor are very poor: those below the
poverty line of US$1.25 a day live on an average of just 70 cents a
day. And partly because high levels of initial inequality mean that
it takes a lot of growth to reduce poverty even by a little. Raising
the growth trajectory by 2 percentage points per capita and modest
redistribution in favour of the poor would get Africa within touching
distance of eradicating poverty by 2030.

Well-designed social protection programmes could play a vital role by
protecting vulnerable people against the risks that come with
droughts, illness and other shocks. By transferring cash, they can
also raise income levels. Experience in other regions - especially
Latin America - demonstrates that social protection can
simultaneously help to reduce poverty and inequality, and boost
growth in agriculture. Yet Africa underinvests in this vital area -
and few governments have developed integrated programmes. By
contrast, they spend around 3 per cent of GDP on energy subsidies,
most of which go to the rich - three times the level of support
provided for social protection. It is hard to imagine a more
misplaced set of priorities.

If Africa is to develop a more dynamic and inclusive pattern of
growth, there is no alternative to a strengthened focus on
agriculture. Sub-Saharan Africa is a region of smallholder farmers.
Some people mistakenly see that as a source of weakness and
inefficiency. We see it as a strength and potential source of growth.

Africa's farmers have an unrivalled capacity for resilience and
innovation. Operating with no fertilizer, pesticide or irrigation on
fragile soils in rain-fed areas, usually with little more than a hoe,
they have suffered from a combination of neglect and disastrously
misplaced development strategies. Few constituencies can have
received more bad advice from development partners and governments
than African farmers. And few of the world's farmers are as poorly
served by infrastructure, financial systems, scientific innovation or
access to markets. The results are reflected in low levels of
productivity: cereals yields are well under half the world average.

Agriculture remains the Achilles' heel of Africa's development
success story. Low levels of productivity trap millions of farmers in
poverty, act as a brake on growth, and weaken links between the farm
and non-farm economy - links that were crucial to development
breakthroughs in Bangladesh, India and Vietnam. Low productivity has
another consequence that has received far too little attention.
Africa's farmers could feed rapidly growing urban populations and
generate exports to meet demand in global markets. However, the
region is increasingly and, in our view, dangerously dependent on
imports. African countries spent US$35 billion on food imports
(excluding fish) in 2011. The share accounted for by intra-African
trade: less than 5 per cent. If Africa's farmers increased their
productivity and substituted these imports with their own produce,
this would provide a powerful impetus to reducing poverty, enhancing
food and nutrition security, and supporting a more inclusive pattern
of growth.

It is time for African governments and the wider international
community to initiate a uniquely African green revolution. We
emphasize the word unique. Copying South Asia's experience and
retracing the steps of other regions is not a viable strategy.
Agricultural conditions in Africa are different. Yet Africa
desperately needs the scientific innovations in drought-resistant
seeds, in higher-yielding varieties and in water use, fertilizer and
pesticide that helped to transform agriculture in other regions.
Returns on investments in these key areas will be diminished if deeprooted
policy failures are not tackled. These range from exorbitant
transport costs for farm produce to underinvestment in storage and
marketing infrastructure and barriers to intraregional trade.

African farmers also need help to cope with the effects of climate
change, which is very likely to lead to above-average warming in
Africa over the course of the 21st century, reducing the yields of
major cereal crops. Yields of maize, a major regional food crop, are
expected to fall by around 22 per cent. The fifth assessment report
of the Intergovernmental Panel on Climate Change identifies Southern
Africa, West Africa and the Sahel as regions facing acute known
risks. However, no region will be unaffected. Even modest changes in
the timing and intensity of rainfall, in the frequency and duration
of droughts, and surface temperature can have profoundly damaging
consequences for production, poverty and nutrition.

All of which makes the international community's failure to provide
adequate adaptation financing indefensible. Having promised much,
rich countries have provided little new and additional climate
adaptation financing. Commitments through climate funds are less than
US$700 million - and spending is even lower. This is unjust and
short-sighted. It is unjust because Africa's farmers are being left
to cope with a climate crisis they did not create. Adaptation
spending in Africa is dwarfed by the multibillion-dollar investments
being undertaken in rich countries. And underinvestment in adaptation
is short-sighted because early investments could boost growth,
enhance food security and reduce climate risks.

Harnessing Africa's resources for African development is another
priority. In last year's report, Equity in Extractives, we
highlighted the damaging consequences of tax evasion and loss of
revenue through undervaluation of mineral resource assets. This year
we turn our attention to renewable resources, focusing on fisheries
and logging. There are some striking parallels with tax evasion. In
each case, Africa is being integrated through trade into markets
characterized by high levels of illegal and unregulated activity. In
each case resources that should be used for investment in Africa are
being plundered through the activities of local elites and foreign
investors. And in each case African governments and the wider
international community are failing to put in place the multilateral
rules needed to combat what is a global collective action problem.

The social, economic and human consequences are devastating. On a
conservative estimate, illegal and unregulated fishing costs West
Africa alone US$1.3 billion a year. The livelihoods of artisanal
fishing people are being destroyed, Africa is losing a vital source
of protein and nutrition, and opportunities to enter higher valueadded
areas of world trade are being lost. Unregistered industrial
trawlers and ports at which illegal catches are unloaded are the
economic equivalent of mining companies evading taxes and offshore
tax havens. The underlying problems are widely recognized. Yet
international action to solve those problems has relied on voluntary
codes of conduct that are often widely ignored. The same is true of
logging activity, with the forests of West and Central Africa
established as hot-spots for the plunder of timber resources.

Placing Africa on a transformative pathway will require investing in
inclusive growth. Infrastructure is one priority. No region has lessdeveloped
road networks and energy systems than Africa. Changing this
picture will require significant up-front capital spending, prefaced
by the development of bankable proposals and the emergence of new
business models. The current financing gap has been estimated at
around US$48 billion. Much emphasis has been placed on the
development of "new and innovative" financing to close that gap,
including the use of aid to attract private investment.
Unfortunately, the delivery of real finance has been less impressive
than the hype surrounding the relentless proliferation of new
initiatives. Part of the problem is a failure to invest sufficiently
in building the capacity of African governments to develop
infrastructure projects.

Africa's financial systems are another constraint on growth. No
region has a lower level of access to financial services. Only one in
five Africans have any form of account at a formal financial
institution, with the poor, rural dwellers and women facing the
greatest disadvantage. Such financial exclusion undermines
opportunities for reducing poverty and boosting growth that benefits
all. Lacking access to insurance, Africa's farmers have to put their
meagre savings into contingency funds to deal with emergencies,
rather than investing them in boosting productivity. Similarly,
lacking access to loans and saving institutions, they are often
unable to respond to market opportunities.

Other weaknesses in domestic financing have to be addressed as a
matter of urgency. At one level, the regional financing environment
has been transformed. Ten years ago, countries across Africa were
still emerging from the Heavily Indebted Poor Countries initiative.
Today, many of the same countries have entered sovereign bond
markets. But Africa cannot meet its financing needs in infrastructure
and skills development through aid and commercial market debt
financing alone. That is why there is no substitute for domestic
financing. Unfortunately, economic growth has done little to increase
either the rate of savings or the proportion of GDP that is collected
in domestic tax revenues - outcomes that point to the need for
institutional reforms.

Recommendations

In this report we document some of the great development challenges
facing Africa. Meeting these challenges will not be easy. Yet
Africa's political leaders, entrepreneurs, farmers and civil society
have an unparalleled opportunity to transform their countries. If
that opportunity is seized, this could be the generation that will be
lauded throughout history for eradicating poverty. We set out in this
report a broad-based agenda for change. At the heart of that agenda
are five core principles, for each of which we identify the necessary
practical action.

Share the wealth

Inclusive growth and expanded opportunity are essential to eradicate
poverty. African governments should set equity targets linked to the
post-2015 development goals. These targets would focus on narrowing
gaps in opportunity. For example, they could include halving over
five years the disparities in school attendance, child survival and
access to basic services linked to rural-urban divides, wealth gaps
and gender divisions. Strengthening the commitment to inclusive
growth demands an expansion of social protection, including cash
transfers to the poor. Governments should be diverting some of the 3
per cent of regional GDP they now devote to energy subsidies into
welldesigned social protection programmes.

Invest in Africa's unique green revolution

African governments, the private sector and the global community must
work together to invest in Africa's unique green revolution.

It is possible to double Africa's agricultural productivity within
five years. As outlined by the African Union, African countries can
end hunger and malnutrition and become major players in global food
markets. It is also vital to unleash the potential of sustainable
agriculture and aquaculture to provide food, jobs and export
earnings. Some of the requirements for achieving a breakthrough in
agriculture are financial. Now is the time for governments to act on
their pledge to spend at least 10 per cent of budget resources on
agriculture. But governments also have to create the right market
conditions. An immediate priority is the promotion of import
substitution to cut Africa's US$35 billion food import bill. This
will require measures to cut tariffs and non-tariff barriers to
regional trade, eliminate transport cartels, and develop marketing
infrastructure.

Take the profit out of plunder

Africa's resources should be sustainably managed for the benefit of
Africa's peoples. National and regional action alone will not be
enough. The international community must develop multilateral systems
that prevent the plunder of Africa's resources.

Fisheries: The global community must act collectively to unleash a
blue revolution for ocean management. To stop the plunder of African
fishery resources, all governments should ratify and implement the
2009 Port State Measures Agreement to tackle illegal unreported and
unregulated (IUU) fishing, and establish a global register of fishing
vessels. African governments should increase fines on IUU vessels,
support artisanal fishing, increase transparency, and provide full
disclosure of the terms on which commercial fishing permits are
issued.

Forests: All commercial logging concession contracts should be
subject to full disclosure, along with the beneficial ownership
structures of the companies involved. Concessions should be provided
with the informed consent of the communities involved, based on a
clear and accurate representation of potential costs and benefits.

Close the twin deficit in infrastructure and inclusive finance

African governments must close the twin deficit in infrastructure and
inclusive finance. The lack of infrastructure is a bottleneck on
growth and opportunity. The same is true of finance. Regional
cooperation on energy and transport is vital in order to achieve
economies of scale in infrastructure projects. African governments
can also support the development of mobile banking and e-commerce to
overcome financial exclusion, building on successes such as M-PESA in
Kenya. Development finance institutions should work with the private
sector to foster more balanced perceptions of risk.

Make tax and finance more fair and transparent

Strengthened domestic resource mobilization holds the key to
financing for inclusive growth, with African governments investing in
efficient and equitable tax collection. Governments should publish in
a transparent manner all tax exemptions that are granted to corporate
entities, both domestic and foreign. The estimated cost of the tax
exemption should be made public, along with the reasons for the
exemption and the principle beneficiaries.

The international community must step up efforts to combat tax
evasion. Multinational corporations operating in Africa should fully
disclose their financial operations and tax payments. Building on
current initiatives, governments should accelerate the automatic
exchange of tax information and build Africa's capacity to benefit
from this information. All governments, including those of
financially secretive jurisdictions, should establish public
registries of beneficial ownership of companies and trusts.
Multinational corporations can lead the way by publishing a full list
of their subsidiaries, as well as information on global revenues,
profits and taxes paid across different jurisdictions.

The international community should also deliver on its aid pledge -
and go one step further by cutting the cost of remittances. The G8
should work with African governments to cut the cost of remittance
transfers to a maximum of 5 per cent. That means curtailing
restrictive business practices on the part of money transfer
operators, strengthening competition, and creating incentives for the
development of low-fee mobile remittance payments.

AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with a
particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.

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